Friday, May 25, 2012

OECD STUDY: "... Small-government countries grow more quickly ..."

To Get Growth, Shrink the State
We examined the 28 OECD countries defined as "advanced" by the IMF between 1965 and 2010. Using regression analysis to control for the growth rates of the factors of production (physical capital, labor and human capital) and initial GDP, our results suggest that reducing the ratio of taxes or spending to GDP by five percentage points increases the growth rate of GDP per capita by 0.5 to 0.6 percentage points per year... 
... Our findings add to the already significant body of economic literature that suggests that small-government countries grow more quickly after accounting for other characteristics. It also shows that there appears to be little correlation between government size as a proportion of GDP and some key outcomes in health and education. The implication is that in the medium term, constraining the size of the state is good for growth, and can also provide social outcomes that are at least as good as those in big-government countries.

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